Self-Employment: Taking Care of Yourself
Four Additional Responsibilities for the Self-Employed
Taxes, insurance, and retirement are additional self-employed responsibilities that you take on when you are working for yourself. Self-employment offers a lot of freedom. It is great to work for yourself and work to achieve your own dreams. With the added freedom comes more responsibility. When you are self-employed, you generally will not have a human resources department taking care of your benefits. You are responsible for your own benefits and future. If you are considering becoming self-employed, here are four things that you should have covered when you are self-employed.
Health insurance is not something that you can do without. The risks of bankrupting yourself with medical bills is simply too great. You may want to skip this expense, but it really is worth the money. There are several plans available for you that are fairly inexpensive. You may be intimidated trying to sort out the difference between the different plans. Knowing which factors to consider can make the process much easier. You may get a high deductible plan if you are fairly healthy, because it offers a lower monthly premium, and it will protect you if you were to need a major surgery or you had an accident. The downside is that you pay for all of your medical expenses out-of-pocket until you hit your deductible, but a health savings account helps to offset the expenses.
- If you are married, you may want to consider using the health insurance from your spouse.
- The health care exchanges may be another option to help you find affordable health insurance.
- Health insurance is protecting your finances. It is important to sacrifice in other areas to have it.
Self-employment and income taxes are another area where you are on your own. You need to set aside money each month, as well as pay your taxes quarterly. It is important to pay the IRS on time and in full. The process requires you to figure out exactly how much you owe. It is not difficult, but you can face penalties if you do not pay quarterly. You can also be fined if you fail to pay your taxes. You may want to use an accountant the first year you file self-employment taxes. It applies whether you are working as a freelancer, an independent contractor or as a business owner. If you have employees, you will also need to make sure you are paying your payroll taxes.
- Setting aside money each month to cover the taxes is the best option to manage this.
- Do not forget about what you will owe in state and local taxes too.
- Keep careful records so that you do not run into issues if you are audited.
Retirement is entirely your own responsibility. You will not have a company match or someone urging you to contribute to retirement. It means that you should definitely begin saving now. There are special accounts available to the self-employed, which offer tax savings. By starting early, you can save less money in the future. In addition to a traditional or Roth IRA, you can open a KEOGH or SEP IRA. You should take advantage of any retirement accounts that give you tax breaks, but you may also want to open additional investment accounts to make sure you have enough money when you want to retire. It can be helpful to talk to a financial adviser to learn exactly what you can do to make sure you are saving enough to reach your retirement goals.
- Do not put off your retirement savings. You will not have additional help from employer contributions.
- You can claim your contributions on your taxes and lower your tax bill.
- Take to an accountant or financial planner to open the accounts and begin making monthly payments.
You may find it more difficult to budget when you are not receiving a set paycheck. However, it is even more important to use your money wisely when you are unsure of how much you will have coming in each month. There are specific steps available to help you budget your variable income. You may want to open a separate account at a different bank to make it easier to keep your business expenses separate from your personal expenses. If you budget carefully and save regularly, you will be able to manage the months when your income is lower than normal. Most professions have slower times during the year, and you may not know when that is the first year or two of working. It means when you first start are you need a very conservative budget, and to save a lot more just to be safe. Once you figure it out, you may not need to save as much each month.
- When times are good, make sure to put money into savings on a regular basis.
- Arrange your finances so that you can cut back on services when needed. It means avoiding contracts that you have to buy out in order to cancel a service.
- Be conservative in your purchases such as a home or car so that you do not have a huge payment hanging over your head.